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2: The Economics of the Abbé de Condillac - Étienne Bonnot, Abbé de Condillac, Commerce and Government Considered in their Mutual Relationship 
Commerce and Government Considered in their Mutual Relationship, translated by Shelagh Eltis, with an Introduction to His Life and Contribution to Economics by Shelagh Eltis and Walter Eltis (Indianapolis: Liberty Fund, 2008).
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The Economics of the Abbé de Condillac
Condillac ’s Decision to Write “Commerce and Government”
In March 1776, when Condillac published Commerce and Government, he was sixty-one years old, the same age as François Quesnay when he first published on economics. When he returned from Parma in 1767 he devoted the next eight years to the seventeen-volume Cours d’études, his summary of everything a prince needed to know to govern well. This took him for the first time towards economics because there are reflections on how economies should be governed. The following statement is of especial interest because it differs so startlingly from the Colbertian dirigisme which had dominated French economic policy during most of the previous century:
Governing an economy requires a comprehensive genius who knows everything, who weighs everything, and who directs all the resources of government in perfect harmony. It would be difficult, or rather impossible to find such a genius. The best intentioned and most skilful statesmen have made mistakes through ignorance or through over hasty action, for it is difficult to see all and bring all together without sometimes falling into error. . . statesmen never do more harm than when they wish to interfere in everything. It is wisest to confine oneself to preventing abuses and otherwise to pursue a policy of laissez-faire. (Condillac, Cours d’études, 20:488)
A year later, in 1776, Adam Smith, who knew Condillac’s philosophy, produced a strikingly similar statement in The Wealth of Nations:
The statesman, who should attempt to direct private people in what manner they ought to employ their capitals, would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it. (456)
Condillac’s advice to a future sovereign therefore led him towards the noninterventionist laissez-faire approach to economic policy which Adam Smith went on to establish so commandingly.
After the publication of the Cours d’études, Condillac followed his contributions to philosophy and a royal education with an account of economics and of economic policy, which he presented, like much of his philosophy, in a single elegant volume.
The first part of Commerce and Government is entitled “Elementary Propositions on Commerce, determined according to the assumptions or principles of Economic Science,” and it provides a step-by-step statement of economic principles to establish the political economy which will most advance the wealth of nations. One of Condillac’s notable philosophical works, his Traité des sensations, had opened with the celebrated initial assumption, referred to in the previous chapter, that human beings are statues. Condillac then relaxed this assumption in successive chapters to arrive at a clear account of complex human sensations. His economics follows a similar methodology. He opens Chapter 1 with a corn model (with corn the only commodity that is produced and consumed), and he gradually relaxes the assumptions to provide a general account of a real economy.
He believed that political economy could be presented simply and comprehensibly by creating a clear language for the representation of economic analysis (which up to then had been lacking) and by using this to move forward, chapter by chapter, to provide a comprehensive account of complex economies. Commerce and Government opens with a striking claim in Condillac’s first paragraph:
Each science requires a special language, because each science has ideas which are unique to it. It seems that we should begin by forming this language; but we begin by speaking and writing and the language remains to be created. That is the position of Economic Science, the subject of this very work. It is, among other matters, the need which I propose to meet. (CG 93)71
In the edition published posthumously in 1798 in the twenty-three-volume collection of his Oeuvres, Condillac adds the footnote:
Since the first edition of this work I have shown in my Logic that the art of dealing well with a science comes down to the art of creating its language well. Also, when I said that the language of Economic Science needed to be created, the public, for whom this science was still often no more than an indecipherable code, had no difficulty in believing this: because it thought, justly, that a language that is not understood is a badly constructed language. (CG 93)
These are statements with which philosophers will have more sympathy than will economists, who still produce “indecipherable codes.”
Condillac’s approach is very much that of a philosopher of the first rank who is seeking to establish a sound basis for economic analysis, and he completes his First Part account of economic principles in 55,000 words. The considerably shorter 35,000-word Second Part, entitled “Commerce and government considered in relation to each other following some assumptions,” has the same title as he gives to his book, with the addition of the words “following some assumptions.” Condillac uses the analysis he develops in the First Part to elucidate the practical questions he is addressing. The expositional method he uses is generally a comparison between abstract countries in which some pursue disastrous policies while others adopt correct policies and perform far more successfully. But the pretence that it is hypothetical countries he is comparing is discarded in Chapter 15, subtitled “Obstacles to the circulation of grain when the government wishes to restore to trade, the freedom it took from it,” which is concerned with the actual impact of the attempted reform of food markets by the great economist-administrator Anne Robert Jacques Turgot who became Controller-General of Finances in 1774 and still held that position when the book was published. In a Third Part, which Condillac foreshadowed in 1776 but never completed, he proposed to consider what he had established in the First and Second Parts “according to the facts in order to rest as much on experience as on reasoning” (CG 93). Richard Cantillon is said to have followed his largely theoretical Essai sur la nature du commerce en générale (1755) with an empirical second volume which has not survived,72 and it has been suggested that Karl Marx’s plan for the third volume of Capital (which he did not live to complete) included an empirical account of the trade cycle in nineteenth-century Britain.73 Condillac might have found it equally challenging to provide an account of “the facts” to conclude Commerce and Government, but this is actually complete as it stands. The theoretical First Part and its development in the Second Part to illuminate practical questions and especially Turgot’s proposed reforms produce a wholly coherent book.
On 9 October 1776, seven months after its publication, Condillac wrote to the marquis de Rangoni about the circumstances which had led him to write and publish Commerce and Government:
I only began to occupy myself with political economy when I wished to produce my work on commerce and government. I worked to inform myself, I had absolutely no preconceptions and I saw nothing but disorder and confusion in the writings being produced in France. You see by this, Monsieur, that I am not sufficiently well versed in this genre to flatter myself that I can be as useful to you as I would wish. I have shown abuses, I have shown the order that must be substituted, and that part was easy: the difficulty is to show the way to set about this problem. I have not known how to involve myself in this question, perhaps I shall deal with it in the third part [of the book] on which I shall not begin to work for the time being. Perhaps also, it may only be possible to indicate the means in a very imprecise fashion, as they must vary with circumstances.
I have long been convinced that a science that is well treated comes down to a well constructed language and I have applied myself to the creation of the language of economic science. Unfortunately I was obliged to work in haste to take advantage of a favourable opportunity, for I foresaw that if there were changes in the ministry, I would not be able to get to press. That is why I have not always put all the precision I should have liked into this work. I have just made some essential corrections to it. . . In any case these changes bear on points of detail which change no essentials and which are only needed to prevent awkward difficulties. (Sgard, Corpus Condillac, 154–55)
The previous chapter describes how the publication of the Cours d’études was much delayed by censors in both Parma and Paris, and Condillac evidently expected that Turgot’s reforming ministry would have sufficient influence to minimise interruptions to the publication of Commerce and Government. It was shown in the previous chapter that its publication was none the less delayed, but perhaps by no more than seven months. As Condillac had envisaged, the lively national interest in political economy during Turgot’s ministry offered him the best chance of publishing Commerce and Government uncensored.
Since 1761 Turgot had been a reforming Intendant in Limoges, in effect head of local government there. In 1769 he had published one of the great classical economic texts, Réflexions sur la formation et la distribution des richesses, and his numerous publications commanded high respect. He corresponded regularly with Condorcet and Du Pont de Nemours, the father of the founders of the United States chemical empire. He had always been close to the philosophes and the encylopédistes as well as to the leading physiocrat économistes, and he was elected President of the Académie des Belles Lettres in 1778. He was well known to Benjamin Franklin, Edward Gibbon and Adam Smith. His personal cabinet included Du Pont, and room was also found for Quesnay de Saint-Germain, a grandson of the founder of physiocracy.74
The appointment of this distinguished philosopher-economist to administer the finances of France with a personal cabinet which included leading économistes aroused great contemporary interest in economic analysis and policy. It was widely understood that a further attempt would be made to apply the economic analysis of the dominant physiocratic school to the problems of the French economy. The physiocrats believed that the economy’s taxable surplus originated in agriculture, so this was where taxes must come from, and that increasing the prosperity of France depended above all on raising agricultural profitability through free trade in food. It was evident that a further attempt would be made to liberalise food markets: reforms had been introduced in 1763–64, but these had been reversed in 1770 when they led to large price increases. The renewed attempt to implement policies based on these doctrines aroused much debate, and those like Condillac who were outside the administration naturally wished to participate in the accompanying excitement and interest in political economy.
Peter Groenewegen has suggested in The New Palgrave: A dictionary of economics that Condillac wrote Commerce and Government “to assist his friend Turgot in the difficulties he faced in 1775 as finance minister over the grain riots induced by his restoration of free trade in food” (Groenewegen, “Condillac,” 1:565). The above letter to Rangoni includes the more general intention to add a book which clarified the foundations of political economy to his extensive published contributions. The level of interest in economics in 1775–76 created the opportunity to combine this with a highly relevant contribution to contemporary debate. No personal correspondence between Turgot and Condillac has been found, but they moved in similarly distinguished circles; it was shown in the previous chapter that they both belonged to Julie de Lespinasse’s salon (and doubtless to others), and there may well have been personal friendship in addition. The economic principles which were to emerge from Condillac’s study of political economy were actually close to Turgot’s. It will emerge that Condillac derived his understanding of the nature of the efficient food markets on which the success of Turgot’s reforms depended from his new theory of value and utility, the core of the theoretical First Part of Commerce and Government.
Condillac’s Innovative Analysis of Value and Utility
The most original contribution of Commerce and Government is Condillac’s theory of value and utility. Here Condillac the philosopher produced a new theoretical approach which only began to be appreciated nearly a century after his death.
Terence Hutchison concluded in his magisterial Before Adam Smith that “Condillac’s work represented the crowning achievement in the long and distinguished line of Italian and French theorists of utility and subjective value,” and that “it is Condillac, with his emphasis on ignorance, uncertainty and erroneous expectations, who has stronger claims than anyone else to be regarded as the founding father of subjectivist analysis in economic theory” (331). It will emerge below (p. 71) that in the 1870s, Stanley Jevons, Carl Menger and Léon Walras, the originators of the marginal revolution, each recognised the importance of Condillac’s contribution. Condillac’s account of the relationship between the utility derivable from commodities, the demand for them, and the impact this had on the motivation to produce was nearly one hundred years ahead of its time.
Condillac the subjective philosopher sought to explain the motivation of producers and consumers, and he did this by suggesting that producers work to obtain utility. Farmers and manufacturers produce to generate “value” for themselves which depends on the personal utilities they derive. In his first chapter Condillac explains that “The value of things is. . . founded on their utility” (CG 99), and he goes on to say: “it is natural that a more strongly felt need gives things a greater value, and that a less pressing need gives them less value. The value of things therefore grows with scarcity and decreases with abundance.” The marginal utility of a single commodity can indeed fall to zero: “Value can even diminish in abundance to vanishing point. For instance, a surplus good will be without value every time that one can do nothing with it, since then it would be completely useless” (CG 100).
Farmers will only increase their output of grain if they can exchange their surplus over their own needs, which offers them no value because it has no marginal utility, for something else that they desire, and the same is true of the producers of all other commodities. Wherever production is surplus to a farmer’s own needs, an absence of adequate opportunities to market an excess will remove any incentive to produce beyond the level which satisfies the farmer’s personal desires. The absence of adequate markets will therefore have highly adverse effects on their incentive to produce and hence on the supply side of the economy. Cultivators’ food that is surplus to their own requirements will only have value for them if they can exchange it for something else which will actually provide utility:
The surplus [of farmers]. . . is wealth, so long as they can find an outlet for it; because they procure for themselves something that has value for them, and they hand over something which has value for others.
If they were unable to make exchanges, their surplus would stay with them, and it would have no value for them. (CG 121)
Farmers’ incentives to produce beyond their own needs will depend on what they can consume with the money they receive from the sale of their surplus produce and the utility they derive from the goods they are entitled to buy, which will include manufactures. Cultivators of the land will obtain utility from manufactures as well as food, so their motivation to produce food will be influenced by the availability and cost of manufactures. There is indeed a mutual interchange between farmers who produce products that manufacturers require and manufacturers who produce products which farmers will find useful. Merchants are needed to arrange the exchange of surplus food for the products of artisans:
Now merchants are the channels of communication through which the surplus runs. From places where it has no value it passes into places where it gains value, and wherever it settles it becomes wealth. . . .
A spring which disappears into rocks and sand is not wealth for me; but it becomes such, if I build an aqueduct to draw it to my meadows. This spring represents the surplus products for which we are indebted to the settlers [colons], and the aqueduct represents the merchants. (CG 121)
As a result of this process whereby merchants arrange the marketing of the agricultural surplus, cultivators are induced to raise their level of production:
If one compares the state of deprivation our tribe is in, when, without artisans, without merchants, it is confined to goods of prime need, with the state of plenty in which it finds itself, when, through the hard work of artisans and merchants, it enjoys goods of secondary need, that is, of a host of things that habit turns into needs for it; one will understand that the work of artisans and merchants is as much a source of wealth for it, as the very work of the farmers. . . .
It is therefore proved that in the final analysis industry is also a source of wealth. . . It has been much obscured by some writers. (CG 125)
This statement was provocative to the économistes who held that agriculture was the sole source of wealth. Condillac argues in contrast in a much quoted passage that farmers, manufacturers and merchants combine to create wealth:
All the groups, each busy with its own tasks, come together in competition to increase the mass of wealth, or the abundance of goods which have value. . . .
It is the farmer who provides all the primary material. But such primary material, as would be useless and without value in his hands, becomes useful and obtains value when the artisan has found the way to make it serve the needs of society.
With each skill that begins, with each advance it makes, the farmer thus acquires new wealth, because he finds value in a product which previously had none.
This product, given value by the artisan, gives a fresh spur to commerce for which it is a new stock in trade; and it becomes a new source of wealth for the farmer because, as each product acquires value, he makes new consumption for himself.
Thus it is that all, farmers, merchants, artisans, come together to increase the mass of wealth. (CG 124–25)
Condillac is arguing that the free exchange of commodities within an economy, each exchange benefiting both seller and buyer, leads to continual advances in the range of products available to the population and to increases in wealth. His account of a competitive economy generalises into a detailed multi-sectoral presentation:
The farmer, busy in the fields, would not have the time free to make himself a coat, to build a house, to forge weapons, and he would not have the aptitude because these jobs require knowledge and a skill he does not possess.
Several groups will therefore form. Besides that of the farmers, there will be tailors, architects, armourers. . . .
When I distinguish four classes it is because we must choose a number. The tribe may and even must have many more. They will multiply in proportion as the arts come into being, and make progress. (CG 124)
all the citizens are given a wage with regard to each other. If the artisan and the merchant are paid by the farmer to whom they sell, the farmer is in his turn paid by the artisan and the merchant to whom he sells, and each of them gets paid for his work. (CG 127)
This mutual financial interdependence of farmers, merchants and artisans reads admirably in the late twentieth century. Condillac’s analysis shows how each class, generating utility for itself, interacts with others to create a highly effective economy.
In addition to arguing that the free domestic exchange of goods will always raise economic welfare, he extends his argument internationally and suggests that countries will always gain from unrestricted trade. He indicated that in 1776 no country had free trade in food and that France would gain by being the first to free both exports and imports:
France, we assume, is alone in giving export full, complete, permanent freedom without restriction, limitation or interruption. All her ports are always open and no one ever demands any duty on entry or exit there.
I say that, on this assumption, the trade in grain must be more profitable for France than for any other nation. (CG 230)
Whether she sells or whether she buys grain, France will, on our assumption, thus have a great advantage over the nations which forbid export and import. . . Because by forbidding export, they reduce the number of purchasers, and consequently they sell at a lower price; and by forbidding import they buy at a higher price, because they reduce the number of those selling to them. (CG 231)
He argued that the same would be true for each European nation:
We may conclude that if the states of Europe persist in denying complete freedom to trade, they will never be as rich or as populous as they might be; that if one of them gave complete and permanent liberty, while the others only allowed a temporary and restrained freedom, it would be, other things being equal, the richest of all; and that finally, if all ceased to place obstacles in the way of commerce, they would all be as rich as they could be; and then their respective wealth would depend. . . on the fertility of the soil and the hard work of its inhabitants. (CG 231)
Thus the removal of all barriers to trade would maximise the wealth of each country. Condillac’s economic reasoning led him to comprehensive support for domestic and international competition and the belief that this would make countries “as rich as they could be.” That was the most that economic policy could contribute; the rest would depend on “the fertility of the soil and the hard work of its inhabitants.”
Working from the analysis of human motivation which was subsequently adopted by most twentieth-century economists, Condillac provided the intellectual foundations for the establishment of the conditions for the maximisation of wealth, both nationally and internationally. With free markets, the free exchange of commodities would contribute to the utility and add to the wealth of all. It was this that led the French Nobel Prizewinner in Economics, Maurice Allais, to comment that Condillac had developed “a general theory of the generation of surpluses, of general economic equilibrium, and of maximal efficiency” (Allais, “General theory,” 174).
“Commerce and Government” and Turgot’s Reform Programme
The policy analysis of the Second Part of Commerce and Government follows the theoretical presentation of the First Part with an account of how the existence of adequate markets plays a central role in providing sufficient incentives for the supply side of the economy. Condillac’s 1776 account of the practical difficulties of Turgot’s reform programme is dominated by the absence of sufficient well-informed merchants to allow markets to work effectively.
In France from the 1750s onwards an influential circle of economic writers had been arguing the case for freeing agricultural markets. Local famines were frequent, and much of the population lived on the borderline of subsistence. Above all, Paris, the centre of political power, where discontent could most easily undermine governments, needed to be fed.75 Governments accepted an obligation to feed Paris, which often involved expensive purchases of grain by vast state-funded organisations and its sale at controlled prices which the people could afford.
The consequent network of government purchasing and price controls was buttressed by a system of supervision of grain markets: Condillac describes its condition at the time Turgot became Controller-General in August 1774, when it was:
forbidden to all persons to undertake trade in grain without having obtained permission for it from officials appointed for that purpose.
forbidden to all others, farmers or landowners to interfere directly or indirectly in carrying out this trade.
Any association between grain merchants was forbidden unless it had been authorized.
forbidden to pay a deposit on corn or to buy corn unripe, standing, before the harvest.
forbidden to sell corn other than in the markets.
forbidden to make hoards of grain.
forbidden to let it move from one province into another without having obtained permission. (CG 292–93)
The disadvantages were compounded by corruption, for:
You could not carry on the corn trade at all without having obtained. . . permission. But it was not enough to ask for it in order to get it; you also needed to have protection; and protection was hardly ever granted except to those who would pay for it, or who would give up a share in their profit. (CG 295)
From the 1750s onwards many economic writers had begun to compare the dirigisme of French grain markets with the comparative freedom of England’s, where competition reinforced by tariffprotection to establish a minimum price for farmers allowed people to be fed without famine and without any need for an apparatus of government control. When Quesnay first published “Fermiers” and “Grains” in the Encyclopédie in 1756, Vincent Gournay and Claude-Jacques Herbert, in his Essai sur la police générale des grains (1753), had already argued for the benefits from deregulated food markets. Quesnay went on to invent the Tableau économique (according to Marx “an extremely brilliant conception, incontestably the most brilliant for which political economy had up to then been responsible”: Marx, Theories of Surplus Value, 1:344) which formed the core of a complex economic model that demonstrated how the finances of France could be enhanced through agricultural reforms in which the freeing of food markets was of central importance.76 These combined influences led to a first attempt at liberalisation in 1763. The special attraction of the liberalisation of grain to those who governed France was the claim that freeing agricultural markets would sharply raise rents and therefore government revenues, which would place the finances of the Kingdom on a sound basis.
Clément-Charles-François de Laverdy, the Controller-General who attempted to liberalise food markets in 1763–64, called upon Turgot and Du Pont, who were to be central to the 1774 reforms about which Condillac writes in Commerce and Government, to draft the relevant decree.77 They both believed that Laverdy’s reforms did not go far enough. Laverdy retained the obligation to feed Paris, and he retained the bureaucratic apparatus to intervene to protect consumers whenever he judged this necessary. That meant that farmers and merchants who had correctly foreseen shortages could find that the exceptional profits which might have resulted from their superior foresight would be wiped out because the state could come in and undercut them by provisioning markets at a loss. Turgot and Du Pont insisted that markets must become entirely free if they were to work as they should. Laverdy also only offered limited and localised freedom to export. The liberalisers believed that France would only become entirely free from famine if a regular export surplus provided a cushion for home consumption in years of poor harvests. The higher prices exports offered would also raise agricultural profits and rents and therefore royal revenues.
Laverdy’s reforms produced disappointing results; food prices rose sharply immediately afterwards, and there were years of famine. The reforms had been welcomed in the agricultural regions which had benefited from higher food prices, but consumer-dominated Paris, which was politically far more important, had been hostile throughout. Laverdy was dismissed in 1768, and from 1770 to 1774 his reforms were reversed: while the liberalisers blamed their failure on their incompleteness.
In 1770 Ferdinando Galiani published a scathing assault on the reformers in Dialogues sur le commerce des bleds which had a great impact, especially because of its wit. Voltaire told Diderot that he had found it a mixture of Plato and Molière: “no one has ever reasoned better nor more amusingly” (Kaplan, Bread, Politics, 593). Galiani especially emphasised the arrogance of the liberalisers who believed that they had practical solutions to all problems, and he drew particular attention to the starvation of those whom free markets temporarily overlooked.78 One of his most quoted remarks denounces the liberalisers’ argument that free markets would rapidly move food from where it was abundant to where it was scarce: “beware that it takes time to send word from a deficit town to a surplus town that grain is lacking and still more time for this grain to arrive. ‘The theory goes well but the problem goes badly,’ for after a week of waiting ‘this insect called man’ will die of hunger” (Galiani, Dialogues sur le commerce, 221–23).
Faced by the practical failure of Laverdy’s reforms and powerful published assaults on the liberal analysis, the new Controller-General, Joseph-Marie Terray, entirely restored the previous system of regulation and even sought to widen its scope: he asked for detailed statistics of grain production and consumption from every region of France to provide the foundations for a national food policy.79 But the vast expense of his provisioning policies and their relative ineffectiveness led to another change of policy in 1774. The liberalisers succeeded in persuading the new King, Louis XVI, that Laverdy’s reforms had failed because of their incompleteness and that Turgot, one of the principal advisers in 1764, should be given the opportunity to carry the reform programme forward to an extent where it could become effective. Soon after he became Controller-General, Turgot appointed Du Pont, another of Laverdy’s principal advisers, Inspector-General of Commerce.
Turgot’s appointment as Controller-General appeared a new dawn to those who favoured reform. D’Alembert wrote, “If good does not come about, one must conclude that good cannot be done” (Turgot, Oeuvres de Turgot, 4:20). But Galiani foresaw a very different outcome. He wrote to Mme d’Epinay from Naples on 17 September 1774 immediately he heard of the appointment: “At last M. Turgot is Controller-General. He will stay in place too short a time to carry out his systems. . . He will wish to do good, will meet thorny problems. . . His credit will fall, he will be hated, people will say that he is not up to the task, enthusiasm for him will cool, he will resign or be dismissed, and once and for all one will realise the error of having given a position such as his to a very virtuous and philosophical man in a monarchy such as yours. Free export of corn will be what will break his neck. Remember that” (Galiani, Correspondance, 4:183–84).
Turgot was appointed on 24 August 1774, and just three weeks later on 13 September he persuaded the King to issue an edict which allowed anyone to trade in food throughout France however and whenever he wished, and to forbid interference with commercial activity under all circumstances by all officials. Turgot even ordered that Terray’s statistics, which were to form the foundation for a national food policy, should no longer be collected.80 Since newly liberalised markets would provide the food the French people needed without even occasional interventions, the government had no need for information about harvests and the quantity of food in granaries.
Turgot accompanied the 13 September decree with a 3,000-word preamble which provided a comprehensive account of the economic reasoning behind his liberal approach to food markets. This was indeed the same as that of the physiocrats and Condillac.
According to this introduction, each province from time to time grew less or more food than it needed because of the vagaries of harvests, and suffered from alternations of distress and glut (non-valeur) when it could not sell its harvest for an adequate price. There were two ways of dealing with the difficulty: “by means of commerce left to itself, or through the intervention of government.” The preamble continued, “Reflection and experience prove alike that in order to furnish the needs of the people, the approach of free commerce is the most certain, the fastest acting, the least costly and the least subject to inconvenience” (Turgot, Oeuvres de Turgot, 4:203).
Turgot’s preamble went on to claim scope for the merchants of France to respond to market forces which much exceeded what Condillac judged to be their actual condition in 1776, when he wrote that the people:
regarded the grain merchants as grasping men who took advantage of their needs. Once that opinion was rooted, a person could not engage in this trade if he cared for his reputation: it had to be left to those vile creatures who counted money for everything and honour for nothing. (CG 300)
In contrast Turgot asserts that:
Merchants, through the huge amount of the capital that they have at their command, and the extent of their connections with other merchants, by the promptitude and exactness of the advice they receive, by the economy that they understand how to place in their operations, by their practical experience in all matters of commerce, have the means and resources lacking to the most far-sighted, clear thinking and most energetic administrators. (Turgot, Oeuvres de Turgot, 4:203)
Turgot’s merchants are not recognisably drawn from the same citizens as Condillac’s, and Turgot’s assumption that this wealthy, sophisticated, well-informed and competitive merchant class already existed was to prove a fatal error in Condillac’s account of the failure of his policies. But Condillac entirely agreed on the importance of a well-informed merchant class if grain markets were to function effectively:
Driven by. . . self-interest, merchants, great and small, multiplied by reason of our needs, will cause the corn to circulate, will put it everywhere at a level, everywhere at the true price [vrai-prix]. (CG 196–97)
In dealing with the circulation of cereals we have seen that it can only be carried out by a host of merchants spread everywhere. These merchants are so many canals through which the grain circulates. Now these canals had been broken and it was time to to mend them.
Indeed, to succeed in any type of trade it is not enough to have the freedom to carry it on; one must. . . have obtained contacts, and these contacts can only be the fruits of experience, which is often slow. One must also have capital, stores, carters, agents, correspondents; in a word one must have taken many precautions and many measures. (CG 298)
Condillac therefore entirely shared Turgot’s analysis that a large, well-informed merchant class was necessary, but he doubted its effectiveness until time and experience had created the infrastructure that successful markets require.
In the preamble to the September 1774 decree, Turgot went on to explain how freely functioning markets could not be relied upon to remedy food shortages if the state’s humanitarian response as under previous Controllers-General was to supply food to the needy at a price below the one that markets would establish:
when the government takes upon itself the task of providing for the people’s subsistence by carrying on the grain trade, it will be participating alone in this trade, because, since it is able to sell at a loss, no merchant can without foolhardiness expose himself to its competition. (Turgot, Oeuvres de Turgot, 4:204)
Turgot believed that governments could only hold grain prices down briefly and intermittently:
Whatever means the Government employs, whatever sums it lavishes, experience has shown on all occasions that it can never prevent corn from being expensive when harvests are bad.
If, by forceful means it succeeds in delaying this necessary effect, this can only be in a particular place, for a very short period; and in believing it can come to the relief of the people, it will only ensure their wretchedness and aggravate their condition. (Ibid., 206)
The artificially low prices are “alms to the rich” at least as much as to the poor, because the well-off consume large amounts of grain themselves and through their households, while the greedy will buy as much as they can at the low prices and store it. Then the authorities will seek to punish such behaviour through terrifying searches of the houses of citizens.
An organisation which seeks to use the resources of government to provision cannot succeed, because:
Its attention is divided between too many objects, and it cannot be as active as merchants who are occupied with their trade alone.
Its operations, nearly always precipitous, will be conducted in a wasteful manner.
The agents it employs, having no interest in economy, buy more dearly, transport at much greater expense, store the grain with less care; much grain is lost and goes mouldy.
These agents may through lack of skill or even fraud, excessively inflate the cost of their operations.
Even when they are totally innocent they cannot avoid being suspected and the suspicion always rebounds on the Administration which employs them. (Ibid., 204)
So for Turgot, as for Condillac, there is no alternative to an attempt at a market solution, but both acknowledge that the price of grain has to be high enough to create the necessary incentive to supply. Turgot insists that competition will prevent the emergence of any monopoly and hold merchants’ profits down, “from which it arises that in years of dearth the price of grain incorporates little more than the inevitable increase which comes from the costs and risks of transporting or guarding the grain in times of need and hunger” (ibid., 204).
Condillac fully acknowledges that the vrai-prix which would follow the establishment of free markets might well be higher than the one which had prevailed previously: “it must be seen that that high price is not dearness; it is the true price fixed by competition, a true price which has its high, its low and its middle limit” (CG 230), while in his introduction to the September 1774 decree Turgot only accepts that prices will be high after bad harvests.
Partly because Turgot wrongly assumed the influence of a competitive merchant class which did not as yet exist, he underestimated the possibility that the freeing of markets would lead to substantial price increases. The price of corn began to rise immediately after the September 1774 decree took effect, and it became 50 per cent higher in 1775 than in 1774.81 By being able to sell corn in provinces other than their own, farmers were able to receive higher prices, and those who bought bread had to pay more. In May 1775 a series of provincial bread riots reached Paris: as a mob was smashing bakers’ shops, the comte de Maurepas, Turgot’s principal colleague in government, went to the opera and left the mob to rampage. The Paris Parlement met and passed a resolution which asked the King to “take the measures which his good sense and love for his subjects will inspire, to lower the prices of wheat and bread to a level appropriate to the needs of the people.” Turgot, regarding it vital to prevent the publication of this subversive decree which asked the King to revoke the laws of market economics, dashed to Versailles in the middle of the night, had the King woken, had a musketeer sent to summon each member of the Royal Council and obtained the King’s agreement to prevent the circulation of the Parlement’s decree. Several ministers were replaced and order was restored. Two members of the mob were hanged, many were imprisoned and a curé who had preached against the food riots received a pension and promotion (to a bénéfice).82
The attitude of the physiocrats to bread riots is illustrated by the marquis de Mirabeau’s statement in a memoir he wrote in 1772, prior to Turgot’s reforms, that “Paris will be fed when Paris will pay” (Weulersse, La Physiocratie, 158); but as Galiani wrote to Madame d’Epinay on 27 May 1775, “I hope that this event will have taught M. Turgot. . . to know men, and the world, which is not that of the works of the économistes. He will have seen that revolts occasioned by dearness are not impossible as he believed” (Galiani, Correspondance, 4:250).
After the crisis, Turgot imposed price controls on bakers, despite the universal belief in the efficacy of markets which he had expressed in his 1774 decree. Joseph Albert, the Lieutenant-General of Police, threatened to hang the first baker who stopped making bread out of dissatisfaction with the inadequate maximum price he was allowed to charge.83 Turgot’s need to feed Paris left him with the fundamental dilemma that the measures necessary to do so undermined his agricultural reforms. He had remarked eight years before he became Controller-General that “the cobblestones of the cities do not produce any grain” (Kaplan, Bread, Politics, 681). The fundamental difficulty that the policy of establishing a free market for food would initially raise food prices remained unsolved. Bachaumont speaks of a mob being ready to smash a bust of Quesnay “on hearing that he was the cause of the current dearness of grain through the false theories and the baneful opinions he had inspired in the government” (Hecht, “La vie de François Quesnay,” 276).
Turgot retained royal support throughout the crisis of 1775, but in February–March 1776 he proposed six reforming edicts which aroused still greater opposition. These included the replacement of the corvée, which obliged peasants to spend a number of days a year on local public works, with the financing of these by local taxation to be paid by landowners. Other decrees proposed to free internal French food markets and to abolish local monopoly privileges. A large number of government posts associated with the administration of the markets Turgot was proposing to free would be abolished, and indirect taxes such as those on salt would be replaced with a territorial tax which landowners and even the Church would have to pay, with a consequent loss of privileges for tax collectors.84 Turgot knew that great opposition would be aroused by the speed of his reform programme, but he remarked when he became a minister at the age of forty-seven: “In my family we die at fifty” (Schelle, Turgot, 211): he was actually fifty-fourwhen he died in 1781.
Maurepas declined to support the six decrees, the Paris Parlement again voiced its opposition, and referred to “The cry for an ill considered freedom” and “a novel system introduced by books and articles, as inexact in their facts as their principles.” But Turgot still enjoyed the support of the King, and his six decrees were endorsed by the Council. Paris was illuminated that night; but Turgot’s triumph was brief.
He was isolated in the Council. He attempted to appease his opponents by closing down the physiocratic journals, but he failed to persuade the King to replace Maurepas or in fact to make any ministerial changes which would strengthen his position. There was indeed powerful and widespread opposition to his reforms which did not even enjoy the support of the unprivileged because the price of bread had risen. Many of those in receipt of government incomes saw that the reforms would destroy their jobs and their wealth. The farmers who were beginning to benefit were mostly some distance from Paris. The King opened conversations with another Provincial Intendant, Clugny, who was appointed to succeed Turgot as Controller-General of Finances in May 1776.85 Clugny proved a tinkerer who rearranged public debt without seeking to pursue policies which would produce sufficient revenues to place government finances on a sound footing. He was succeeded by others, including most notably Necker, who equally failed to achieve the fundamental reforms which were needed.
Turgot actually wrote to Louis XVI immediately before the King replaced him, “Never forget that it was weakness that placed the head of Charles I on the block” (Schelle, Turgot, 238). The King had written to Turgot previously: “It is only you and I who love the people” (ibid., 247). But he failed to sustain Turgot in office, and permitted Clugny to reverse the six decrees. His Queen, Marie Antoinette (who followed Louis XVI to the guillotine during the Revolution), wrote to her mother, Maria-Theresa, the Empress of Austria, that she was not sorry Turgot’s ministry had fallen. The Empress responded that they had tried to do too much too quickly.86 That is always the problem radical reformers face. Gustave Schelle, one of Turgot’s principal biographers, has commented that if Turgot had moved more slowly, opposition to his reforms would have had more time to build up, and his position would have been undermined before much could be achieved.87 The optimum pace of reform when radical change is necessary is never clear. After his reforms encountered difficulties Turgot fell victim to the short-term policy option of all monarchs (and Prime Ministers) that the ousting of a Controller-General (or a Chancellor of the Exchequer) is “one of the few acts by which the King could please the vast majority of his subjects without taking into consideration any of their specific grievances” (Kaplan, Bread, Politics, 249).
Condillac published Commerce and Government two months before Turgot’s fall, but the fate of the reform programme was already clear. Many of the later chapters of Commerce and Government are a thinly veiled indictment of the vast range of anti-competitive institutions and policies which proliferated in France and which undermined the effectiveness of the economy and the King’s finances. He was especially concerned by the dirigisme in the market for grain which was so prominent in Turgot’s programme. Writing contemporaneously with the reforms which he utterly supported, and perceiving the initial opposition they aroused, Condillac provides insights into the failure of Turgot’s policies. His description of the French grain market and his account of the conditions in which Turgot’s policies were pursued underlines the initial difficulties he faced.
Condillac comments on the adverse reaction to the price increases that followed the freeing of food markets. People remarked: “‘Look at what freedom produces.’ That is how the common people reasoned, and they were almost the entire nation. They thought that the dearness was a result of freedom.” They did not appreciate that prices would only fall when there were “enough merchants” to establish cereals “at their true price”. But they said, “we need bread every day” (CG 298–99). They believed that:
the one task of government was to procure them cheap bread. . . So every time that it became dearer the people asked the government to have the price lowered.
There were only two ways to satisfy them. The government had to buy grain itself to sell again at a loss, or it had to force merchants to deliver their corn at the price it had fixed.
Of these two ways the first tended to ruin the state; the second was unjust and odious; and both accustomed the people to think that it was for the government to obtain cheap bread for them. (CG 299)
In Condillac’s judgment the people saw the problem of obtaining cheap bread as a conflict of “The rights of humanity opposed to the rights of property” (to which Condillac replied, “What gibberish!”); and everyone said “the most absurd things to oppose the operations of the new minister. . . It seemed that everyone was condemned to reason badly on this matter.” Turgot’s opponents, many of whom had favoured the policy of freeing food markets until the uncomfortable consequences of higher prices emerged, now included, according to Condillac, “poets, geometricians, philosophers, metaphysicians, in a word almost all literary men, and especially those whose trenchant tone hardly allows one to take their doubts for doubts, and who do not permit one to think differently from them” (CG 300).
The philosophes had welcomed the physiocrat policy of freeing food markets when this appeared to be a contribution to greater freedom in general, but much of their support was withdrawn as soon as it became clear that greater market freedom meant higher prices. When the freeing of food markets as a consequence of physiocrat advocacy had produced localised famine in 1770, Voltaire wrote that: “I have a desire to carry my protests to the Éphémérides des Citoyens” (Kaplan, Bread, Politics, 504), while Diderot’s response to the argument that higher food prices would eventually raise the supply of food was: “I eat badly when I only have potential bread” (Diderot, Apologie, 115).
Opposition to Turgot also came from the vast bureaucracies which government had created to administer regulated markets and to exploit monopolistic privileges in international trade. Condillac writes:
In the capital they need administrators, directors, clerks, employees: they need other administrators, other directors, other clerks, other employees wherever they form establishments. They also need, in addition to the counters and the warehouses, buildings as a monument to the vanity of the directors they employ. Forced to such outlays, how much will they not lose in embezzlement, in negligence, in incompetence? They pay for all the errors of those they employ to serve them; and all the more arise, as the administrators who succeed each other at the whim of faction, and who each see differently, never allow a sensible, sustained plan to be made. They form badly contrived enterprises: they carry them out as though randomly; and in an administration that seems to tie itself up in knots, they employ self-interested men to complicate it further. The direction of these companies is thus necessarily vicious. (CG 314)
Those with vested interests in the perpetuation of these bureaucracies added their voices to the opposition to Turgot’s reforms. According to Condillac, “the new minister showed courage,” but “Such are the chief obstacles in the way of the reestablishment of freedom. Time will remove them if the government perseveres” (CG 300–301). It became evident two months after the publication of Commerce and Government that Turgot would not be allowed to persevere. After just twenty months, the opposition Condillac describes led to his fall and the reversal of his reforms. As Condillac remarked, “when disorder has reached a certain point, a revolution, however good it may be, is never accomplished without causing violent shocks” (CG 298).
The physiocrats fell with Turgot. Du Pont was ordered to leave Paris, and the editors of the physiocratic journals which Turgot had closed in a vain attempt to appease his opponents were exiled. But what had occurred became central to economic debate. The économistes had had an opportunity to give practical effect to their theories and they had failed. The reasons for Turgot’s fall, which Condillac illuminates in Commerce and Government, have aroused continuing interest, including a major work by Edgar Faure, a President of the National Assembly and member of several twentieth-century French governments.
There is much in Condillac’s account of the difficulties that Turgot’s reforms encountered as a consequence of their immediate adverse impact on vested interests and food prices which foreshadows the obstacles that similar reforms have encountered in post-communist Eastern Europe.88 In the eighteenth century and in the twentieth, prices rose sharply when markets were first freed, and the extent of the price increases was accentuated because the large numbers of merchants and traders required to exploit freer markets were absent. Some of the movement and trading of food and consumer goods fell into the hands of the semi-criminal because the numerous middlemen and the small traders which efficient distribution requires had not yet emerged. In the eighteenth century and in the twentieth, new policies were obstructed by inefficient bureaucracies with vested interests in the prevention of reform which undermined their privileges.
Like the leading physiocrats, Condillac entirely supported Turgot’s reform programme, and his account of the contemporary reasons for its failure should have made sense to them. His theory of value with which his book opened has earned high praise in the twentieth century. But how did his contemporaries, and above all the physiocrats, react to the book on its first publication in 1776?
The Contemporary Reaction to “Commerce and Government”
The publication of a book on economics by this well-connected and distinguished philosopher and man of letters was bound to arouse great interest. He had known François Quesnay well,89 and common ground has been found in their approaches to the philosophy of science, on which both published in the 1750s,90 but Quesnay had died in 1774, two years before the publication of Commerce and Government. The professional reaction would come from the physiocrat followers of Quesnay. Economic thought advances and a new contribution by a distinguished writer would inevitably re fine and develop what had already been published. Condillac was in complete agreement with the two principal physiocrat policy proposals: the freeing of food markets and the use of the agricultural surplus as the only sustainable source of tax revenues. He opens his analysis of the sources of taxation by stating that only landowners have the resources to pay taxes:
There are in general only two classes of citizen: that of the landowners to whom all the land and all the products belong; and that of the paid workers [salariés] who, having neither land nor produce of their own, subsist on the wages that are due for their work.
The first class can easily contribute; since, with all the products belonging to it, if it does not have all the money, it has more than the equivalent and besides it passes entirely through its hands. (CG 220)
When he says that everyone is either a landowner or a paid worker, Condillac is saying that everyone either owns land so that he is financially independent, or else depends for his livelihood on the production of a good or service. In this sense the paid workers sell their labour (which may be extremely skilled) or the products of their labour in the market place for their livelihood. Because the incomes of paid workers ultimately have to be paid by landowners, any shortfall in such incomes must eventually fall on the landowners who will bear the burden of any tax:
So there you have, in a state such as France, several millions of citizens who are forced to cut back on their consumption. Now I ask whether the land will return the same income, when people sell a smaller amount of their produce to several million citizens. So whether the wage-earners are totally reimbursed, or whether they are only partially reimbursed, it is clear that, in the one case as in the other, the tax that one places on them falls equally on the owners.
Indeed, the landowners must certainly pay for the wage-earning class, since it is the landowners who pay the wages. In a word, no matter how one approaches it, they must pay everything. (CG 221–22)
While Condillac totally supported the principal policy proposals of the physiocrats, his new theory of value and utility on which his analysis was ultimately based had led to the conclusion that “farmers, merchants, artisans come together to increase the mass of wealth,” and even more provocatively that this had been “much obscured by some writers.”
Because his analysis endorsed Quesnay’s principal policy proposals, the physiocrats could have regarded this contribution by a distinguished philosopher and member of l’Académie française as a constructive contribution to the analysis of their school. They had accepted the economics of Turgot, who had been heterodox enough to suggest that industry as well as agriculture generates an economic surplus: in the form of profits, which only appear tangentially in Quesnay’s writings.91 Turgot was welcomed as at least a “fellow traveller,” and physiocrats were delighted to have the opportunity to serve with him in government. They none the less censored his writings via extensive editorial amendments by Du Pont before these could be allowed to appear in Les Éphémérides du citoyen.92 A school of knowledge which is still alive can accommodate debate. This will generally enrich its analysis through the Hegelian process of thesis-antithesis-synthesis. Would Condillac’s book be similarly welcomed as a basis for debate on the development of physiocracy? The physiocrats would have found it technically challenging to absorb his analysis of human motivation into their system’s already rich analysis, but a successful synthesis of the economics of Quesnay and Condillac would have produced a stronger theory.
Contemporaries of the physiocrats have remarked on their dogmatism. For instance, in 1769 David Hume wrote to Morellet, who would soon be commissioned by the Administration to write a book to rebut Galiani, “crush them, and pound them, and reduce them to dust and ashes,” for they are “the most chimerical and arrogant [set of men] that now exists” (Hume, Letters, 2:205). Would the leading physiocrats succumb to such arrogance and dogmatism in their reaction to Condillac?
When Commerce and Government first appeared it was received with interest. According to the abbé Nicholas Baudeau, Du Pont’s successor as editor of Les Ephémérides, the book was published with “the highest praise” (Baudeau, “Observations,” 432), while according to Guillaume-François Le Trosne, another prominent physiocrat, it had impressed “many people” (Le Trosne, De l’intérêt social, 886). In April 1776 Morellet sent a copy across the Channel to the future British Prime Minister, the Earl of Shelburne, and remarked in his accompanying letter, “I am however sending you an admirable book by one of our men of letters, the abbé de Condillac. You no doubt have his treatise on education, but this is an elementary economic work where the ideas are in general true and the principles wise. In every part of it you will find freedom of commerce sustained” (Morellet, Lettres, 1:339).
Some of the most distinguished physiocrats were members of the Société royale d’agriculture d’Orléans, and Condillac was invited to read chapters from his book to this society in February and March 1776. In the minutes of the 306th meeting on 14 March 1776 it was noted that the society had seen with satisfaction that “the practical conclusions aimed to guide every administration that intends the public good being found in perfect conformity with those of economic science, fewer problems than advantages are to be expected from the publication of this work” (Lebeau, Condillac, 41). On 21 March the society continued to read and discuss Condillac’s book, but on 25 April 1776 the first part of a critical review article by Baudeau appeared in Les Nouvelles Éphémérides, and this was discussed in place of further chapters of Condillac’s book. Then on 27 February 1777 Le Trosne came to the 331st session of the society to read chapters of his new book, De l’intérêt social, which included an extensive critique of Commerce and Government. The flavour of Baudeau’s and Le Trosne’s responses to Commerce and Government can be judged from Baudeau’s statement that:
True économistes can easily be distinguished by one simple characteristic in a manner that the whole world can understand. They recognise one master, Dr Quesnay, one doctrine (that of Philosophie rurale and l’Analyse économique), classic texts (la Physiocratie), and a single formula (le Tableau économique), and they use technical terms in the same way as the ancient scholars of China. (Baudeau, “Observations,” 433)
Le Trosne complained that Condillac had departed from doctrines which had been “published, proved and demonstrated in several works in the last fifteen years” (Le Trosne, De l’intérêt social, 886). After further readings from Le Trosne’s critique, the society concluded that he had succeeded in “dissipating the clouds in which the subtle metaphysician, M. l’abbé de Condillac, appeared to wish to obscure this science that is so important to the well-being and stability of political societies. The Society has thanked M. Le Trosne” (Lebeau, Condillac, 43).
In addition to their dogmatic hostility, Baudeau and Le Trosne had criticisms of substance, which were sufficient to persuade the Royal Agricultural Society of Orléans to condemn the book.
Both Baudeau and Le Trosne drew attention to Condillac’s statement that there were, in general, “only two classes of citizens: that of the landowners. . . and that of the paid workers” (CG 220). They could not accept Condillac’s radical concept of a multi-sectoral and mutually interdependent economy.
Their detailed criticisms concerned Condillac’s sketchy (to the physiocrats’ confused) account of the creation of the agricultural surplus which was central to physiocracy. The landowners provided the sole source of taxable revenues. But could the entrepreneur-farmers who invested their own capital in farms which they leased and whose success or failure determined whether France would grow or decline be regarded as belonging to the same class, paid workers (les salariés), as farm labourers? Condillac generally describes those who farm as “colons” or “fermiers.” In the early chapters where he describes a very primitive society (peuplade) these plausibly own their own land, but as soon as the argument is developed and landowners congregate in cities where they receive rent, can those who actually organise agriculture be sensibly described as belonging to the same class as farm labourers? It would be entirely natural to speak of both farm labourers and farm managers as employees if farming was conducted on a métayer basis where all farm capital is owned by landowners, while those who actually farm on their behalf are allowed to keep a fraction of the harvest, corresponding via competition to the subsistence wage.
But Quesnay insisted in his first publications that to achieve the level of agricultural surplus which France required and England was actually achieving, it was necessary that agriculture should evolve to a condition where the management of farms was in the hands of capitalist tenant farmers. These would take farms on long leases, own all movable capital such as horses, ploughs and farm animals, finance all the costs which precede harvests and own the harvests net of their obligation to pay an agreed rent to landowners. Quesnay called this manner of farming “la grande culture” as opposed to the métayer system which he labelled “la petite culture.”93 Condillac’s two-class society comfortably accommodates la petite culture in which les salariés are easily recognisable, but he nowhere brings the considerable technical advantages of la grande culture fully into his argument. Condillac’s father was a prominent provincial lawyer, while Condillac himself lived as a philosopher who advised princes. Quesnay grew up the son of a farmer, who understood the significance of capital-intensive farming with horses rather than labour-intensive farming with ox-drawn ploughs: Condillac never discusses the details of efficient farming which were so central to the principal physiocratic texts. Baudeau and Le Trosne complained that by calling both entrepreneur-farmers and day-labourers salariés, Condillac had obscured the economic significance of the entrepreneur-farmers on whom the well-being of France predominantly depended in mainstream physiocracy.
Condillac actually distinguishes the entrepreneur-farmers from labourers in his chapters “The origin of towns” and “Of the right of ownership” (CG 135–40), where he sets out several ways in which agriculture can be organised. Landowners may receive their rents through farm managers who will also sometimes themselves farm; or directly from large farmers who themselves lease the land from the landowners, provide initial and annual advances and hire day-labourers, which is Quesnay’s la grande culture; or farming may be organised through métayer systems of output sharing. He does not bring these distinctions into the remainder of the book, and he makes no reference to Quesnay’s insight that only some systems of land tenure are compatible with la grande culture where horse-drawn ploughs produce a rate of surplus three times as great as the ox-drawn ploughs of la petite culture. Condillac’s passages on alternative systems of land tenure are slightly extended in the passages he added to the 1798 edition in response to the criticisms of Baudeau and Le Trosne, but again there is no impact on the remainder of the book.94 Condillac therefore still neglected to bring the physiocrat supply-side arguments about agricultural efficiency and what actually determines the extent of the agricultural surplus directly into his argument.
But his detailed analysis of agriculture is entirely in line with his general approach to economic efficiency. The incomes of farm managers, farmers and day-labourers are all determined by competitive market forces, and the land is capable of delivering a growing supply of agricultural produce as new demands for this are created through the development of new industrial products. Quesnay’s world, where horse-drawn ploughs yield a surplus on annual advances of 100 per cent and ox-drawn ploughs a surplus of 36 per cent, is essentially one of fixed coefficients. Condillac has no fixed coefficients. Instead, provided that the markets for farm managers, farmers, day-labourers and food are competitive, agriculture will be conducted in the best possible manner to maximise productive efficiency. The supply side will organise itself through market forces which must be allowed to operate entirely freely, and it will then operate as effectively as possible. With this general approach, he does not need to follow Quesnay, Baudeau and Le Trosne in having more categories of employees in agriculture than in other sectors. It is enough to say that throughout an efficient economy there are landowners and the salariés, who are all those who are market-dependent, be they managers, farmers or labourers.
Le Trosne was highly critical of Condillac’s multi-sectoral view of the economy, but he accepted that his argument had led him to policy conclusions which were as sound (they were indeed the same) as those of the physiocrats:
I admit only one source of wealth, and M. l’abbé de Condillac admits as many as there are kinds of work. . .
However when he moves on to the practical, the fairness of his intellect redeems his argument. He establishes perfectly the single tax, freedom of industry, freedom of commerce both internal and external, the effects of monopoly and the dangers from prohibitions. The theoretical lines of thought he has developed do not influence his results. (Le Trosne, De l’intérêt social, 933)
Le Trosne writes equally warmly that “I shall bring to this discussion, which has the sole object of instructing the public, the high respect the author merits, and I dare flatter myself that there will be no weakening in the friendship he has been ready to show me” (ibid., 886).
Baudeau complains that Condillac made no use of Quesnay’s Tableau économique:
you would destroy to nothing the Tableau économique, this masterpiece of the Master, this valuable summary of economic doctrine. You certainly had no intention to do this wrong to knowledge, nor to the memory of Dr Quesnay of whom you were a disciple and friend before me. (“Observations,” 443)
The unwillingness of Baudeau and Le Trosne to accept Condillac’s book as a contribution to economic debate which deserved to be added to the literature meriting discussion by the dominant physiocratic school sufficed to limit its contemporary impact.95 The physiocrats could have absorbed into their system the most fundamental element of Condillac’s contribution: utility and its impact on human motivation. Condillac was not the first to see a powerful connection between value and utility. Galiani had found one in Della Moneta in 1751, and Condillac’s attention was drawn to this work while he was tutor to the Prince of Parma.96 Turgot also set out an analysis of the influence of utility on value in 1769 in an un finished paper, “Valeurs et monnaies,” which was published posthumously by Du Pont, but the extent of its manuscript circulation during his lifetime is unknown.
Condillac’s readily available published account of the connection between value and utility is more coherent and comprehensive than Galiani’s and Turgot’s,97 and it was therefore from him that the physiocrats had an out standing opportunity to absorb the influence of utility upon value and human motivation into their analysis, almost a century before this became the universal approach of economists throughout the world.
“Commerce and Government” in the Nineteenth and Twentieth Centuries
Adam Smith published The Wealth of Nations three months after Commerce and Government, and it established an overwhelming case for competitive market economics and the removal of trade barriers. The policy conclusions of Commerce and Government are similar, and Maurice Allais and Friedrich von Hayek, French and German Nobel Prizewinners in economics, have bracketed it with The Wealth of Nations. Hayek has remarked that “the great strides” in economics “always came from outside—and for the most part in opposition to—the schools” which, like the physiocrats, are “more likely to hinder than to advance progress.” He refers in contrast to the lasting gain to science in 1776, “the year in which the works of Adam Smith and Condillac were published” (Hayek, “Richard Cantillon,” 267). Allais has described Commerce and Government as “definitely superior to Smith in theoretical analysis and logical systemization of ideas” (Allais, “General theory,” 37).
But in 1776 and subsequently, the impact of The Wealth of Nations was immeasurably greater. A key to the contemporary success of Smith’s book and Condillac’s failure to arouse widespread attention may be found in Spencer Pack’s interpretation of the relevance of Smith’s Lectures on Rhetoric and Belles Lettres to the success of The Wealth of Nations. Smith advises that when an author is writing for those already receptive to what he has to say, a deductive method of presentation with a logical derivation of conclusions from axioms which readers are already prepared to acccept is appropriate. It is by far the easiest to follow and it is the most elegant. But when an author is writing for the unconverted, he should argue inductively, moving step by step from known facts to the conclusions he wishes to establish. Tariffs, restrictions on trade and detailed government interventions proliferated in both Britain and France in 1776, so both Condillac and Smith were addressing the unconverted, but Smith adopted the method of presentation he had prescribed for such a situation:
keep as far from the main point to be proved as possible, bringing on the audience by slow and imperceptible degrees to the thing to be proved, and by gaining their consent to some things whose tendency they cant discover, we force them at last either to deny what they had before agreed to, or to grant the Validity of the Conclusion. . . if they are prejudiced against the Opinion to be advanced; we are not to shock them by rudely affirming what we are satisfied is disagreeable, but are to conceal our design and beginning at a distance, bring them slowly on to the main point and having gained the more remote ones we get the nearer ones of consequence. (Smith, Wealth of Nations, 146–47)
Pack reminds us with this passage in mind that Smith only reached his critique of mercantilist policies after more than 500 pages replete with convincing empirical detail.
Condillac in contrast used the deductive methodology of a distinguished philosopher and moved faultlessly and elegantly from proposition to proposition,98 but he failed to carry the vast majority of his French readers. His initial chapters lacked Smith’s empiricism, and his French readers were un-prepared to accept that a deductive argument, which moved from premises they did not recognise as relevant, could arrive at conclusions which sensibly related to their country. Because of the consequent lack of recognition by his own countrymen, unlike much important French economics of the eighteenth and nineteenth centuries, Commerce and Government was not immediately translated into English. This limited the scope for international recognition in the warmer environments for deductive argument and free market conclusions that was offered by the economics profession in Britain and later the United States.
There were occasional citations of Condillac in the nineteenth-century French literature. In 1803 Jean-Baptiste Say found Condillac insufficiently empirical in his “Discours préliminaire” to his Traité d’économie politique:
almost all the French writers of some reputation who have concerned themselves with matter relating to Political Economy from 1760 to around 1780 without positively marching under the banner of the physiocrats have nonetheless allowed themselves to be dominated by their opinions. . . One can even count Condillac among their number although he sought to devise his own system. There are some good ideas to be discovered among the ingenious chatter of his book; but he passed by the most fruitful truths without noticing them. Just like the physiocrats, he almost always bases a principle on a gratuitous assumption: now an assumption may serve as an example but not as a fundamental truth. Political Economy only rose to the level of the sciences when, like the other sciences, it made a study solely of what is. (xviii– xix)
A. F. Théry repeated Say’s judgement that Commerce and Government is insufficiently empirical to make a significant contribution to economics in his introductory article on the life and works of Condillac for the second edition of the complete Oeuvres de Condillac published in Paris in 1821–22. It was Théry’s judgement and doubtless that of his contemporaries that Condillac was an important philosopher but an in significant economist.
The 1844 edition of Say’s Cours complet d’économie politique was published with a “Bibliographie raisonnée de l’économie politique” by A. Blanqui, who claimed that he had omitted no book essential to the study of economics, but he failed to include Commerce and Government among the 600 titles he listed.
A passage from Commerce and Government none the less attracted condemnation from two economists, Say and Marx, who do not ordinarily cohabit. Both strongly criticised Condillac’s statement that:
it is false that in exchanges one gives equal value for equal value. On the contrary, each of the contracting parties always gives a lesser value for a greater value. . . Indeed, if one always exchanged equal value for equal value, there would be no gain to be made for either of the contracting parties. Now, both of them make a gain, or ought to make one. Why? The fact is that with things only having value in relation to our needs, what is greater for one person is less for another, and vice versa. (CG 120)
In the Cours complet d’économie politique Say declared that “This doctrine. . . does not explain in any way the variety of phenomena which commercial production presents. . . I confront the same errors in social discourse, and even in books” (part 2, ch. 13).
Marx’s reaction is to be found in the first volume of Capital: “We see in this passage, how Condillac. . . confuses use-value with exchange-value. . . Still, Condillac’s argument is frequently used by modern economists, more especially when the point is to show, that in the exchange of commodities in its developed form, commerce, is productive of surplus-value (part 2, ch. 5).
Condillac’s argument which both Marx and Say condemned was that the value of commodities depends on their utilities, and that when a good is sold, the total utility the seller sacrifices is less than the total utility the buyer gains, and vice versa. He drafted a further five paragraphs to explain this analysis further after the publication of the 1776 edition, and these are included in the posthumous 1798 edition (and on pp. 121–22 of the present text). Marx cites Condillac from Daire’s 1847 edition, which includes none of the post-humous material (see p. 79 below), while it is not clear whether Say used the 1798 edition, which included the additional material. Marx and Say may have condemned Condillac without reading all he had to say on this question.
The concepts of consumers’ and producers’ surplus were developed well after his death, but the statement which both Marx and Say objected to is compatible with that later development of economic theory, and Condillac comes close to it in the posthumous paragraphs. In the twentieth century it came to be understood that the buyer of a commodity for final consumption gains a consumer’s surplus, while the producer gains a producer’s surplus. Theorems have been formulated to establish that the sum of these will be maximised when the relevant commodities and factors of production are sold entirely freely in competitive markets. Condillac’s economics is in line with these twentieth-century developments.
How close he came to understanding that there were actually rigorous proofs for his propositions is naturally unclear, but in chapter after chapter he reiterates the benefits an economy derives from the free exchange of goods in competitive markets.
Condillac began to receive serious attention after the marginal revolution of the 1870s when Stanley Jevons and Carl Menger discovered that there was much where Condillac had been before them. In 1871 in his Theory of Political Economy, Jevons credited him with “the earliest distinct statement of the true connection between value and utility” (xxviii). Also in 1871 in his Grundsätze der Volkswirthschaftslehre, Menger referred to his fundamental view that utility is the measure of a good’s use value which has “frequently reappeared since that time in the writings of English and French economists” (Menger, 297). He has eight references to Condillac, more than to any other French economist apart from Say, and more than to any British economist other than Adam Smith.99 Walras was less warm. In his pathbreaking Eléments d’économie pure of 1874 he writes:
The science of economics offers three major solutions to the problem of the origin of value. The first, that of Adam Smith, Ricardo and Mc-Culloch, is the English solution, which traces the origin of value to labour. This solution is too narrow, because it fails to attribute value to things which, in fact, do have value. The second solution, that of Condillac and J. B. Say, is the French solution, which traces the origin of value to utility. This solution is too broad, because it attributes value to things which, in fact, have no value. Finally, the third solution, that of Burlamaqui and my father, A. A. Walras, traces the origin of value to scarcity [rarité]. This is the correct solution. (201)
Walras at least places Condillac among the originators of one of the leading approaches to the theory of value.
After the 1870s, with the significance of Condillac’s contribution to the theory of value and utility firmly established, several French economists recognised the importance of Commerce and Government. In particular, Condillac’s condemnation by the physiocrats was reassessed, and several preferred his analysis to theirs. That was the early twentieth-century judgement of Charles Gide and Charles Rist, the authors of Histoire des doctrines économiques depuis les Physiocrates jusqu’à nos jours, which appeared in seven French and two English editions between 1909 and 1948. They wrote, 140 years after Condillac’s death, “it is above all in Condillac’s book that we must seek the closing of the gaps and the correction of the errors of the Physiocrats” (3rd ed., 55).
Writing in 1912, Émile Morand examined the psychological theories of value of Galiani, Turgot and Condillac, and described Condillac as “the most eminent man of his century on this question” (La Théorie psychologique, 6). He especially praises Condillac’s account of the role of commerce in the creation of value:
the aqueduct which, for Condillac, symbolises commerce, becomes as the creator of wealth, the creator of value. (Ibid., 308)
Condillac developing his general theory logically arrives at results which are far more admissible and far more in conformity to economic reality since he recognises that commerce has an immense role in the creation of value. (Ibid., 311)
He sided with Condillac against the physiocrats who insisted that exchanges of goods cannot increase the “value” of production and extolled precisely the passage which Say and Marx condemned. He argued indeed that this controversial passage is at the heart of the originality of Condillac’s contribution, and he has extensive passages which show that those who receive goods in an exchange derive more utility from them than those who part with them, and that these potential gains in utility go on to spur real economic activities which raise the value of production.
When he argues that the utility gained from exchanges leads to a consequential increase in productive activity, he quotes the passage where Condillac argues that with each advance made by artisans, farmers acquire “value in a product which previously had none,” which gives “a fresh spur to commerce” so that “farmers, merchants, artisans, come together to increase the mass of wealth” (CG 125). Morand writes:
Therefore it is difficult to provide in less space a better and more complete perception of the role commerce plays in production; here again by the exactitude and depth of his insights Condillac far surpasses those of whom he has often been regarded as a disciple. Value being founded on our needs, the appearance of a new need, to which corresponds a good appropriate to satisfy it, creates a new value. (La Théorie psychologique, 312)
He identi fies “To give less for more” as a phrase which “returns in Condillac’s work as a refrain. . . it alone would be enough to distinguish him from the physiocrats” (ibid., 302).
Perhaps the greatest French compliment to the advance of Condillac over the physiocrats is to be found in Georges Weulersse’s La Physiocratie sous les ministères de Turgot et de Necker (1774–81), posthumously published in 1950, forty years after his great history of physiocracy.
His account of “Physiocracy under the ministry of Turgot” concludes with the chapter “Attack and defence of the system,” which culminates in an account of how Condillac surpassed his predecessors. He opens by remarking that “it was left to a quali fied philosopher, a more subtle analyst, to advance the elucidation of the problem,” of the role agriculture plays in relation to industry and commerce (La Physiocratie sous les Ministères, 229). He welcomes Condillac’s statements that industry and commerce add to the mass of wealth. Like Morand, he endorses the statement that each party to an exchange always gives up a lesser for a greater value (neither refers to its condemnation by Say and Marx):
this is the precious distinction between the psychological value in use to the individual and the social market value in exchange which the physiocrats were inclined to consider too exclusively. (Ibid., 230)
Weulersse emphasises that a very different natural social order emerges as soon as it is accepted that industrial and commercial as well as agricultural activity add to the value of output.
He remarks that, “according to our philosopher, a society consists of a kind of universal salariat, a conception altogether strange to the [physiocratic] school.” He quotes Condillac’s statement that “all the citizens are given a wage with regard to each other. If the artisan and the merchant are paid by the farmer to whom they sell, the farmer is in his turn paid by the artisan and the merchant to whom he sells, and each of them gets paid for his work” (CG 127). Weulersse remarks that here there is not merely mutual dependency between the different classes; there is actually equal dependency, which has important social implications (La Physiocratie sous les Ministères, 230).
He agrees with Baudeau and Le Trosne that Condillac analyses the role of capital in production with “far less precision” than the physiocrats (ibid., 231). But Weulersse emphasises passages in Commerce and Government, such as “all citizens are, each by reason of his work, co-proprietors in the wealth of the society,” to suggest remarkably that Condillac even comes close to a labour theory of value (ibid., 232).
The respect of Jevons, Menger, Walras, Gide and Rist, Morand, Weulersse, Hutchison, Allais and Hayek for the economics of Commerce and Government in the 200 years since its publication underlines that French political economy failed to take advantage of an important opportunity in 1776 and 1777.
In the development of British classical economics, Malthus and Ricardo enriched the economics of Smith. They strongly criticised several of his conclusions, but accepted his analysis as the starting point for their own. British political economy strengthened and developed as Malthus’s theory of population and Ricardo’s theory of value and distribution were integrated with the economics of The Wealth of Nations to culminate in the last great work of British classical economics, the Principles of Political Economy (1848) of John Stuart Mill. Classical French political economy would have become equally great if the économistes had been prepared to absorb the best of Condillac’s economics instead of dogmatically condemning it.
Those concerned with the administration of economic policy in France would also have benefited from a familiarity with Condillac comparable to the familiarity with Smith of almost all who governed Britain in the nineteenth century. The continuing Colbertian dominance in official French economics might have been less pronounced if French political economists and administrators had been more aware of Condillac.
English language readers who come upon Commerce and Government for the first time will find, with Allais, that the case for competitive market economics has rarely been presented more powerfully, and that there is continuing relevance in Condillac’s account of the difficulties that those who seek to liberalise economies still encounter.
[71. ]Commerce and Government is abbreviated to CG hereafter; page references are to the edition presented in this volume.
[72. ] A. Murphy, Richard Cantillon: Entrepreneur and Economist (Oxford: Oxford University Press, 1986), 251.
[73. ] Z. Kenessey, “Why Das Kapital Remained Un finished,” in Perspectives on the History of Economic Thought, ed. William J. Barber, vol. 5, Themes in Pre-Classical, Classical and Marxian Economics (Aldershot, Hants.: Edward Elgar, 1991).
[74. ] Gustave Schelle, Turgot (Paris, 1909), 154.
[75. ] Steven Kaplan (Bread, Politics and Political Economy in the Reign of Louis XV [The Hague: Martinus Nijhoff, 1976]) provides a detailed and authoritative account of French policy with regard to grain from the 1750s to the 1770s and the particular impact of the need to feed Paris. This has much influenced the account which follows.
[76. ] Perhaps the most succinct account of the physiocrat reform programme is to be found in Philosophic rurale, where, with Mirabeau, Quesnay shows in twenty-two pages how freeing food markets and substituting the taxation of rents for all other taxes could double the capital of France in nine years (Marquis de Mirabeau [Victor Riqueti] and François Quesnay, Philosophic rurale [Amsterdam, 1763; reprinted in 1972 by Scientia Verlag Aalen], 2:354–75). Their argument is explained in Walter Eltis, “The Grand Tableau of François Quesnay’s economies,” European Journal of the History of Economic Thought 3, no. 1 (1996): 21–43.
[77. ] Kaplan, Bread, Politics, 141–42.
[78. ] See G. Faccarello, “‘Nil Repente!’: Galiani and Necker on economic reforms,” European Journal of the History of Economic Thought 1, no. 3 (1994): 519–50, for an account of Galiani’s analysis.
[79. ] Kaplan, Bread, Politics, 550–52.
[80. ] Ibid., 552.
[81. ] Turgot, Oeuvres de Turgot, 4:45.
[82. ] See Schelle, Turgot, ch. 13; Turgot, Oeuvres de Turgot, 4:44–55; and E. Faure, La Disgrâce de Turgot, 12 mai 1776 (Paris: Gallimard, 1961), Part 2, chs. 3–4, for detailed accounts of the bread riots (“La guerre des farines”) of 1775.
[83. ] Kaplan, Bread, Politics, 509.
[84. ] See Schelle, Turgot, ch. 14; Turgot, Oeuvres de Turgot, 5:1–12; and Faure, La Disgrâce de Turgot, Part 3, chs. 4–5, for accounts of the February– March decrees.
[85. ] See Schelle, Turgot, ch. 16; Turgot, Oeuvres de Turgot, 5:12–20; and Faure, La Disgrâce de Turgot, Part 3, chs. 6–7, for accounts of Turgot’s fall.
[86. ] Schelle, Turgot, 251–52.
[87. ] Ibid., 252.
[88. ] See Faccarello, “‘Nil Repente!’,” for an account of the contemporary explanations of Galiani and Necker for the practical failure of Turgot’s reforms, and the general implications for price reform programmes—in eighteenth-century France and in twentieth-century Eastern Europe. See also Walter Eltis, “France’s free market reforms in 1774–5 and Russia’s in 1991–3: the immediate relevance of L Abbé de Condillac’s analysis,” European Journal of the History of Economic Thought 1, no. 1 (1993): 5–19.
[89. ] According to J. Hecht, “La vie de François Quesnay,” in François Quesnay et la physiocratie (Paris: Institut National d’Études Démographiques, 1958), 252, Condillac was a frequent visitor (habitué) to Quesnay’s entresol in the Palace of Versailles.
[90. ] Philippe Steiner (“L’économie politique du royaume agricole François Quesnay,” in Nouvelle histoire de la pensée économique, edited by Alain Béraud and Gilbert Faccarello [Paris: Éditions la Découverte, 1992], 227–28) refers to similarities between the article “Évidence” which Quesnay contributed to the Encyclopédie in 1756 and the Traité des sensations and the Traité des animaux which Condillac published in 1754 and 1755, and suggests that Quesnay’s article is borrowed largely from Condillac. According to Louis Salleron (editorial notes in François Quesnay et la physiocratie, 397), Quesnay’s article is developed from fundamental ideas which he first presented in his Essai phisique sur l’oeconomie animale (1736; 2 nd ed., Paris, 1747), so the priority for some of the argument is Quesnay’s.
[91. ] G. Vaggi (The Economics of François Quesnay [London: Macmillan, 1987]) shows from a careful interpretation of detailed physiocratic sources (including especially Quesnay’s articles “Grains” and “Hommes”) that farmers gain profits wherever the current price of corn exceeds the fundamental price (prix fondamental) and that there is a general tendency for profits to arise from this source. Walter Eltis (“François Quesnay: a reinterpretation, 1: The Tableau économique,” Oxford Economic Papers 27 : 176–77) shows that the equilibrium incomes of large farmers necessarily include the equivalent of a normal profit on the large capital sums they have to invest in la grande culture. It none the less requires considerable textual exegesis to find profits in Quesnay. In most of his writings incomes consist only of the revenues of landowners and the earnings of those who work in the productive and sterile sectors.
[92. ] Turgot’s Réflexions. . . appeared in three successive issues of Éphémérides (1769, vols. 11 and 12, and 1770, vol. 1), and Du Pont made such extensive changes to his text that Turgot wrote on 2 February 1770, “I insist absolutely that you conform to my manuscript from now on. . . the passage on avances foncières has caused me particular heart-ache; you know how I argued on this subject with l’abbé Baudeau in your presence; I may be wrong, but we each wish to be ourselves and not someone else” (Turgot, Oeuvres de Turgot, 3:374). It was none the less Du Font’s version of the Réflexions. . . and not one based on Turgot’s manuscript which he republished in 1808–11 in his nine-volume Oeuvres de M. Turgot. Peter D. Groenewegen (The Economics of A. R. J. Turgot [The Hague: Martinus Nijhoff, 1977], xx), following Schelle’s account in Turgot (Oeuvres de Turgot, 3:373–84), suggests that “all these changes and additions were designed to give the Ré flections a greater Physiocratic flavour and to remove conflicts between Turgot’s economics and Physiocratic thought.” See also Robert L. Meek, Turgot on Progress, Sociology and Economics (Cambridge: Cambridge University Press, 1973), 37–38.
[93. ] Quesnay’s detailed accounts of la petite culture and la grande culture are set out in the articles “Fermiers” and “Grains” which he published in the Encyclopédie in 1756 and 1757. Their significance and the interconnections between methods of farming and the extent of the agricultural surplus are set out in Eltis, “François Quesnay.”
[94. ] Lebeau (Condillac, 138–47) discusses the significance of the new passages.
[95. ] See Daniel Klein, “Deductive economic methodology in the French Enlightenment,” History of Political Economy 17, no. 1 (1958): 52–53, for a similar account of the rejection of the economics of Commerce and Government by Baudeau and Le Trosne. He does not refer to the extent of Condillac’s common ground with the physiocrats so that, as with Turgot, they could have welcomed his support and acquiesced in the differences.
[96. ] Terence Hutchison, Before Adam Smith: The Emergence of Political Economy, 1662–1776 (Oxford: Basil Blackwell, 1988), 324.
[97. ] In 1769 Turgot elegantly derived the relationship between the relative marginal utilities of commodities and their relative values in exchange in his uncompleted “Valeurs et monnaies.” His rigorous analysis took the form of two persons trading two commodities. The influence of the opportunity cost of producing the commodities and the generalisation of the argument beyond two persons and two commodities are sketchily indicated. It is not known if Condillac saw Turgot’s manuscript; if he did, he certainly extended the argument, which is why he is widely credited with the principal French originality in the development of the relationship between utility and value, and its implications for an efficient economy. Turgot’s analysis of utility, value and demand is set out and discussed in detail in G. Faccarello, “Turgot et l’économie politique sensualiste,” in Nouvelle histoire de la pensée économique, vol. 1 (Paris: Éditions la Découverte, 1992), 254–88.
[98. ] The deductive nature of Condillac’s methodology is emphasised in Klein, “Deductive economic methodology.”
[99. ] Erich W. Streissler, “The influence of German economics on the work of Menger and Marshall,” in Carl Menger and His Legacy in Economics, edited by Bruce J. Caldwell, Annual Supplement to vol. 22 of the History of Political Economy (1990), 35.